Lots of Surgeries or Doctor Visits This Year?
If you’ve had a year with lots of surgeries, illnesses, hospitalizations, or other medical expenses? These substantial healthcare costs can be distressing and cause a considerable financial drain on your savings. So, maybe you’re wondering whether some of your medical expenses are allowable income tax deductions which could give you a little bit of a break on your tax bill.
What’s Allowable?
Allowable medical expenses are out-of-pocket costs incurred for the diagnosis, treatment, prevention, or management of diseases and medical conditions. These expenses may include payments to doctors, specialists, chiropractors, hospital stays, prescription medications, medical equipment, and even certain travel expenses related to medical care. In some cases, expenses like dental care, vision correction, and mental health services, weight loss procedures or smoking cessation qualify. In addition, nonprescription drugs and nutritional supplements can be a viable deduction.
Tax laws define which expenses are eligible, and these laws can vary by state, so consult with us at Adams Accounting Solutions to help you sort through which of your medical expenses are, indeed, deductible.
How Are Medical Expenses Deducted?
Medical expense deductions fall under itemized deductions, so this means you must opt out of taking the standard deduction to claim them. The process involves a bit of work, but it may be worth it! You must keep all receipts, records, and billing statements to substantiate your out-of-pocket expenses, then your tax preparation partners at Adams Accounting Solutions can help you compare these expenses to the allowable threshold set by the IRS.
Now for the Numbers
According to the IRS, medical expenses must exceed a specific percentage of your adjusted gross income (AGI)—currently 7.5%—before they can be deducted. As an example, if your AGI is $50,000, only expenses exceeding $3,750 (7.5% of $50,000) are deductible.
Guidelines to Determine if it is Beneficial to Deduct Medical Expenses:
1) Substantial Expenses in the tax year
Deducting medical expenses becomes beneficial when your total qualifying costs are significantly high. If you’ve had a major surgery, undergone extensive treatment, or paid for long-term care, the expenses could surpass the threshold for deduction. In such cases, itemizing could yield greater tax savings than the standard deduction.
2) When Your Adjusted Gross Income (AGI) is Low
Since the deductibility of medical expenses depends on exceeding a percentage of your AGI, individuals with lower incomes are more likely to benefit from this deduction. A lower AGI means the threshold amount is smaller, making it easier for your medical expenses to qualify.
3) When You’re Itemizing Other Deductions
If you’re already planning to itemize other deductions—such as charitable contributions, business expenses (for business owners) or expenses for a side hustle, mortgage interest, or state and local taxes. Why not go ahead and add medical expenses to your itemized list? It will likely enhance the overall deduction value. Trust the pros at Adams Accounting Solutions to help you determine if your combined deductions will significantly exceed the standard deduction.
4) Combining Expenses for Entire Household
Taxpayers can usually include medical expenses for their spouse and kids when itemizing, so don’t forget about your dependents. By combining the family medical costs, you will have a better chance of surpassing the threshold, and lead to If the combined family medical costs surpass the threshold, this can amplify the deduction and potentially lead to sizable tax savings, so it can definitely be worth it!
Limitations & Considerations
While deducting medical expenses can be advantageous, it’s critical to understand the limitations. Only eligible expenses as defined by tax regulations can be claimed and you MUST have accurate documentation, including receipts, bills, and medical records. Failure to substantiate your claims could result in penalties or loss of the deduction.
Deducting allowable medical expenses on your income tax can provide significant financial relief, especially if you’ve been burdened with high healthcare costs in the tax year. Yes, the process will involve a lot of meticulous documentation. However, the financial benefits often outweigh the time and effort spent.
Let Adams Accounting Solutions guide you through the process of understanding when to itemize your medical expenses, or not. If itemizing makes sense, our tax professionals will help you ensure you are leveraging medical expense deductions effectively. The time and effort you spend can turn a challenging financial year into one with unexpected savings.
Whether you’ve faced substantial medical expenses or are simply exploring options, consult with our friendly staff at Adams Accounting Solutions. We will ensure you are adhering to tax regulations, and this is key to optimizing this worthwhile deduction. We’re only a click or a phone call away!